Power of Paycheck Planning by Springboard Nonprofit

The POWER of PAYCHECK PLANNING

Promoting Financial Literacy

About Springboard Springboard is a nonprofit organization founded in 1974. We offer personal financial education and assistance with money, credit, and debt management through educational programs and confidential counseling.

Accredited by the Council on Accreditation (COA)

Member of the National Foundation of Credit Counseling (NFCC)

Approved by the Department of Housing & Urban Development (HUD)

HUD Approved

BBB

Member of the Better Business Bureau (BBB)

™

ACCREDITED BUSINESS

Our Services Include: • Credit and Debt Counseling • Financial Education Programs (seminars and materials) • Debt Management Plans • Homeowner Assistance (Foreclosure Prevention) • First Time Home Buyer Seminars • Reverse Mortgage Counseling • Pre-Bankruptcy Budget and Credit Counseling • Bankruptcy Pre-Discharge Financial Management Instructional Course

“The Power To Move Beyond” Headquarters Office: 4351 Latham St • Riverside, CA 92501 Mailing Address: P.O. Box 5438 • Riverside, CA 92517-5438 800.947.3752 • fax: 951.781.8027 www.credit.org • e-mail: education@credit.org

Introduction Surveys show that only 12% of high school seniors learn about money management in school. Most of us can’t remember learning about finances and how to handle our money while we were students, because chances are we didn’t. Historically, it has been up to parents to teach their children the skills needed to make smart choices, pay off debt and build savings. Unfortunately, most of us end up learning these lessons the hard way after we’ve moved out on our own. We fall into every trap at least once before we learn to avoid them. The Power of Paycheck Planning is a lesson in basic budgeting, that many off us feel we may already know, but could use a refresher in. We find that many of our clients like to return to this seminar periodically to brush up on their budgeting skills.

First Steps When it’s time to get started living on a budget, you should make the commitment and jump right in. Every day you delay your start, it will get harder. The time to stop overspending and get control of your finances is right now. Before you even construct a budget or get started tracking your spending, there are some things you should do first: • Stop incurring new debt. Borrowing money for consumer spending is no way to make your budget work. You’ve got to put away those credit cards to live successfully on a spending plan. If you’re a client enrolled in a Debt Management Plan (DMP), you’ve already surrendered your credit cards as you work to become debt free. But even if you aren’t a DMP client, you should set the cards aside if you want your budget to succeed. • Live on a cash basis. Get used to buying with cash; there is a place for credit cards in your financial life, but for now, don’t use them while you’re getting used to living on a budget. • Get a handle on your situation. Sit down with your monthly bills, statements, checkbook register, and everything you have relating to your household finances. Look at your regular bills; when are they due each month? What do your utilities typically cost in a month? What do you spend every week at the grocery store? We’re going to advise you to thoroughly track your spending as you begin your budget, but it’s helpful to have some idea of your household spending at the outset. • Relax. Take it one day at a time. You’re not going to build the perfect budget right out of the gate. It will take some adjusting to get things right. So even if you bust your budget one week, or break down and indulge in a spending spree at the mall, don’t give up. If you fall off the horse, get back on and keep riding.

A spending plan (budget) is a plan to figure out where your money goes before you get it. Knowing where your money is going is the first key to financial security, and keeping a budget, which includes tracking your spending. This is the only way to really know where your money is going.

WHERE TO BEGIN WHEN CREATING YOUR BUDGET There are two things everyone needs to know before you begin to budget: 1. How much you earn 2. How much you spend Most people can tell you to the penny what they earn in a month. Our paychecks tend to look the same week after week. However, very few can say with any certainty what they spend. In order to create a budget, one must do the work necessary to have a thorough knowledge of one’s spending habits. Without a solid understanding of what one spends, no budget can hope to be accurate enough to be useful. We believe many budgets fail because not enough effort is put into tracking one’s spending as part of the budgeting process. You’ll find budgeting sheets on the next few pages that will help you add up your living expenses and see where you stand. You’ll need that information to make adjustments to your spending that will allow you to stay within your income.

Track Your Spending We recommend that you track all of your spending for at least 90 days. It takes some work, but it’s a good habit to get into and it’s easier as you do it more and more. There are a variety of methods you can use to track your spending: • Use the forms provided in this book • Use a day planner or calendar • Carry a small notebook • Keep your receipts in a separate envelope for each day • Use software like Microsoft® Money or Quicken® (chances are you already own one of these applications if you own a personal computer) Use whatever method works for you; the main objective is to track where your money is going. But remember, tracking will only work if you include every single expense. Every time you drop 75¢ in a vending machine, you have to make note of it. This process may be tedious at first, and it may even get annoying, but stick with it. After a couple of weeks of tracking, our experience is that it gets much easier and becomes part of your routine. Eventually you’ll be recording your spending automatically, like recording checks in your register or brushing your teeth every morning. Here’s a guarantee: if you track your spending faithfully, there will be some surprises. You’ll learn that you are spending money in ways you never realized. Once you are armed with this information, you can construct a new, more effective budget.

DAILY TRACKING SHEETS Use the tracking sheets on the following 2 pages to record all of your expenses each day. Make copies of these pages as needed.

ÂŠ2009 Springboard Nonprofit Consumer Credit Counseling The Power of Paycheck Planning

Date

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Total

Mortgage/ Property Rent Taxes

Insurance

HOA

Gas/ Electric

Telephone /Cell

Water/ Sewer/ Trash

Groceries

Car Payment

2nd Car Payment

ÂŠ2009 Springboard Nonprofit Consumer Credit Counseling The Power of Paycheck Planning

Date

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Total

DMV

Registration

Auto Insurance

Gas/Oil

Day Care

Child Support

Taxes

Medical

Cable TV

Savings

Misc

TRACKING SHEET FOR MONTHLY EXPENSES Use this sheet to summarize your monthly expenses. Make copies of this page as needed.

Net Income

Income

Week 1

Week 2

Week 3

Week 4

Net Income Per Week: Housing

Monthly Expense Mortgage/Rent 2nd Mortgage Property Taxes/12 Homeowner’s Insurance Gas & Electric Water/Swere/Garbage HOA Dues Telephone

Food

Food: Dining Out Groceries

Insurance Insurance Medical

Medical

Auto

Car Payment 2nd Car Payment Auto Insurance DMV Registration/12 Gas/Oil Repairs

Family

Childcare Alimony

Taxes

Personal

Miscellaneous (Cable TV) Personal (Cosmetics, clothes) Entertainment Gifts/Contributions

Savings

Totals

Total Expense Total Income Total Surplus Total Deficit

Budget

Comparing your spending to national averages It’s hard to say what is “normal” when it comes to spending. Looking at national averages, we can get some idea of what a typical household spends on various budget items. Bear in mind that these figures are a few years old (as recent as government-provided statistics get) and that a “Household” equals 2.5 people. That may affect your budget numbers if your household is larger. Food We often find the trickiest expense to track is food spending. It takes more effort to track groceries, dining out, and other food spending than any other category of expenses. Based on USDA figures, the average household spends $38 per week per person on food. Individual examples vary widely, of course; a single mother spends an average of $28 per person per week for herself and her children, while single men living alone without children spend $55 per week on food. So while $38 is the national average, you could get by spending less; $30 per week per person might be a worthy goal. NOTE: Don’t be tempted to create a budget using these national averages without tracking your own spending thoroughly. Odds are you have no idea what you’re spending right now, so it will do you no good to guess what your food spending is and plug in $38 as your weekly expense. Once you do track your spending, then you can compare it to these averages. Based on what we learn from the USDA, if you find that you are spending more than $40 per week per person on food, you’re spending more than you have to, and you should be able to cut back and save some money. Housing The average household spends $15,000 per year on housing. This includes all utilities, household supplies, furnishings, and public services as well as the rent or house payment. Breaking things down further, we see that the average annual expenditure on shelter is $8,800, or $733 per month. Utilities and public services average $3180 per year, or $265 per month. The remaining $3020 per year spent by households covers housekeeping supplies, home furnishings, and other home operations. As usual, don’t just rely on these numbers for your own budget without thoroughly tracking your own expenses. If you find you are spending more than this for your own utilities household expenses, you should look for ways to cut that spending.

Transportation The average household has 2 cars, and spends $8350 per year on transportation. Car payments make up $3550, or roughly $150 per month for each of the household’s two cars. Gasoline costs the average household $2000 per year, or $167 per month, though this figure is rocketing up with each passing year. Other expenses amount to 2350 per year. This may seem like a potential area to cut expenses, but we urge you not to cut back on necessary maintenance and regular oil changes. Putting off responsible maintenance sets you up for a bigger car repair bill down the road.

Healthcare The average household spends $2664 on health care per year, or $222 per month.

Entertainment A typical household spends $2388 per year on entertainment, or $199 per month. This is an area where most of us could effectively cut back on our spending. You may not even notice a difference in your lifestyle if you make the right kind of spending cuts (renting movies instead of buying them, for example).

Clothing Apparel expenses amount to $1886 for the typical household, or $157 per month. These averages can be a helpful guide to tell you whether your spending is way out of line, but they are not absolute. Your circumstances may vary from national averages, so you don’t have to put too much stock in USDA statistics.

Creating Your Budget Three things you need to know before creating a budget: Your budget should be developed based on three things: your income, your expenses, and your goals. You’ve already seen the importance of tracking your expenses before creating a budget. The important thing to remember about assessing your income is that you must include every source of income you have, not just your primary job and its accompanying paycheck. Use this chart to track all of your sources of income:

Monthly Income Source: Job Spouse’s Job Part-Time Job Rental, Room & Board Received Commissions, Bonuses Tax Refund (annual amt divided by 12) Investment Income Government Benefits Unemployment Insurance Child Support/Alimony Support from Family/Friends Personal Loans Collected Garage/Yard Sales Other Total Monthly Income:

Gross

Net

Categorizing Expenses After determining your total income, you need to calculate your expenses when creating a new budget. We’ve shown you techniques for tracking your daily spending over the course of a month. After you have recorded all of your spending, you should break it into a few categories before making any decisions about future spending. The two most important categories of expenses are needs and wants.

NECESSARY EXPENSES Your necessary expenses are your needs. Some things are essential for your life, and there’s simply no way to cut them out of your budget. Many (but not all) of your utility bills are needs. Water, electricity, and gas are needs. Your rent our house payment is your most important need; that’s the first bill you should pay every month.

DISCRETIONARY EXPENSES These are your wants. Magazine subscriptions, cable TV, designer shoes, and other discretionary expenses are fine things to want, but you could survive without them indefinitely while working your way through a budget crisis. Generally, we spend too much on wants. Sometimes we get confused and trick ourselves into thinking that they’re really needs. Some items can blur the line between want and need. Consider cell phone service or clothing. You definitely need to buy clothes, but maybe you don’t need expensive suits. However, if you work in a job that requires you to dress your best, then yes, those nice clothes are a need. Cell phones are a luxury for a lot of people, but if you absolutely have to be available at all times as part of your job, then you may need that cell phone. The rule to bear in mind is this: Anything that is necessary for you to earn a living is a need. When breaking down your spending, you’ll have to be diligent about separating the necessary expenses from the discretionary. Even things you don’t want to live without may end up on the discretionary column. That’s okay; you’re probably going to have to cut back on discretionary spending, but you won’t have to cut everything. Spend some time ranking your wants, so when it comes time to trim something off of your budget, you won’t cut the things you want most.

Ignore Television Commercials All advertising is designed to persuade you that you need things that you really just want. You may see the ads for a $50,000 SUV or luxury car and think you need all the features these vehicles offer. You don’t. You probably don’t need anything more fancy than a moderately priced used car. Not All Needs Are Alike We’ve just conceded that a car is a need for most people. But don’t take that as a license to go overboard. You may need a car to get to work and pick up the kids from school. A station wagon or minivan would fit the bill. You don’t need a sporty convertible or massive SUV. The same is true for food. You need to eat, but you don’t need to go out to a restaurant every week. You don’t need a $3.00 cup of coffee every morning on the way to work. Look at your phone bill. You need to have a phone, but do you need caller ID, call forwarding, digital voicemail, etc.? These features usually cost you extra. Get rid of the ones you don’t need.

Debt Repayment After you divide your necessary from your discretionary expenses, you aren’t done categorizing your spending. You should also separate out your monthly debt payments. This usually takes the form of credit card bills, though auto loan repayments and personal loans would also count. You may have borrowed money for wants or needs, but now your focus should be to pay off all of your debts. This will factor in your budgeting strategy. Of course, we’ve already told you to stop incurring new debt and to live on a cash basis. This is essential to wiping out your debts. Take each debt and figure out a monthly payment amount that will allow you to pay off your debts as quickly as possible. For your auto loans, this is your established car payment. For your credit cards, don’t just send the minimum monthly payment; if you do, you’ll be paying toward that debt for the next 30 years. Start with a fixed term, say 4 years, as a goal to pay off those debts. Divide the total debt by the number of months in the term. For example, say you owe $6000 on a credit card. Over four years, or 48 months, you’d pay $125 per month to wipe out the debt. If that amount is too large for your budget, you can adjust the payoff term to something longer, like 5 years. Then you’d only have to pay $100 per month. Whatever you do, though, don’t stretch out the payoff term so much that you’re just making minimum payments. And of course, if you can pay more, by all means do so. Make it your goal to get those debts paid off in 2 or 3 years if possible. In just a few years you can be debt free, and your ability to live on a budget and save for your goals will be improved immensely. After you’ve determined your income and separated your expenses into the appropriate categories, it’s time to turn to your goals.

Setting Goals The purpose of creating a budget in the first place. An essential part of achieving financial freedom is setting clear goals and employing some intelligent joint planning. You need to know what your financial goal is, and in what time period you hope to achieve your goal. It’s suggested that the whole family be a part of it to make it successful! A short-term goal should be accomplished within one year. Say you plan to take a vacation that will cost $1200 next year. You’ll need to save $100 per month to reach that goal in time. A mid-range goal takes between 2 and 5 years to accomplish. Saving for a car might be a good mid range goal. Long-term goals take over 5 years to achieve. Saving for retirement, college, or to purchase a home are common long-term goals.

Financial Goals

Target Date

Total Needed

Example: A 36 months $20,650 new car

Current Savings

$6,250

Additional # of pay savings periods until needed target date

$14,400

Short-Term Goals Mid-Range Goals Long-Term Goals Total:

MY FINANCIAL GOALS Write down your financial goals.

Savings needed per pay period

Savings needed per month

$200

$400

Goal Strategies

No one method works for everybody, and there’s no way we can include every possible strategy here, but we can offer a few ideas about goal strategies that can help motivate you to succeed. 1.

Competition Some people can’t cross the finish line unless there’s someone there to race against. If that describes you, then think about applying it to your budgeting goals. If you have a potential competitor in your household, like a spouse or roommate, maybe your goal can be “to pay off more debt than my husband this month” or “to put more in the emergency fund this week than my wife.” This can make the goal more immediate, and thus more motivational. It will also provide feelings of accomplishment more quickly. Some competitive types find that the opponents that goad them the most are their creditors. “Bank of America can’t get the best of me!” If this helps you get committed to sticking to your budget, that’s great. (Just be sure you don’t sound adversarial when talking to your creditors on the phone.)

Cooperation This can be as strong as competition for some people. Having families, couples, or friends helping each other toward goals can be important. You can take a goal like “saving $300 to pay for a small vacation by July” into even smaller cooperation based goals, like: “We’ll clip coupons together once a week” “We’ll clean out a closet together every weekend and find something to sell” “We’ll make all our Christmas presents together this year” “We’ll pick out movies from the library instead of going out.” Sharing goals can make them less of a burden, and working together can be more important than the goal itself.

Attempts This is a goal strategy often used by sales people. Instead of focusing on the target, which may be out of your control, you focus on the attempt, which is within your control. For example, a door-to-door salesperson might change the goal from “Sell 10 vacuum cleaners today” to “knock on 150 doors today and show this vacuum cleaner to at least 20 people.” Sometimes, no matter how good the sales pitch, s/he might not sell 10 machines. But the salesperson can still make the goal and know that s/he gave it all. Similarly, budget goals can be broken down this way. Instead of “I’ll spend only $80 on food this month,” you might say “I’ll take my lunch to work every day this week.” The idea is to focus on the journey rather than the destination. If thousands of dollars in medical bills that seem too overwhelming, set a smaller goal, like, having an extra $50 set aside by the end of the month. Focusing on the details will train you to spend more wisely. People may not think buying generic brand trash bags will matter much against a 10 thousand dollar mountain of debt, but it can matter against a $20 weekly goal. Attempts goals teach you to sweat the small stuff.

Don’t be too flexible You’ll often hear, with regard to goals, to “be flexible.” That’s not necessarily a good idea. To be really effective, objectives should be firm. The problem with leaving “something to fall back on” is that people often fall back on it. It’s better to have a solid goal and fail by a smidgen than to get in the habit of letting yourself off the hook. If you find that the goal is simply too ambitious, scrap it and create a new goal that is more realistic. But don’t make it too squishy. Set a firm goal and strive for it.

Adding it all up Making sure you have a workable budget Now it’s time to put everything together and see whether your budget will work. Remember, your short, mid and long term goals should be included with your expenses on your budget.

First, determine your total monthly expenses: Total Necessary Expenses Total Discretionary Expenses Total Debt Payments Total Monthly Expenses Now let’s see if your budget balances: Total Monthly Net Income Minus Total Monthly Expenses Balance (+/-) Now, if your expenses exceed your income, you will have to work to find solutions if you are going to avoid falling deeper into debt. Credit counseling can help if you have high debt payments that are upsetting your budget. You may also tighten your belt in some areas to balance your finances. Whatever you do, don’t cut into the 10% - 15% you should be saving; you need to save up to three – six months’ income to get through an emergency before you can start saving for anything else. If necessary, you can look at ways to cut your spending and increase your earnings to make ends meet. For now, you should reasonable, attainable goals; you can also push a goal’s deadline back and give yourself more time to save money. Re-evaluate your budget periodically, especially when your income or needs change. A budget is simply a guideline, a tool to help you save to buy the things you want. With smart money management and clearly defined goals, consumers can come to rely on credit cards less and less. We’re entitled to have the things we want; we just have to be prepared to budget intelligently and save to get them.

WHAT YOUR SPENDING SHOULD LOOK LIKE The ranges indicated above reflect income levels, family size, and personal choice. It’s not a mistake that the percentages above don’t add up to 100. Everyone’s finances are different, and if your employer provides your medical coverage for example, you may be able to put more into other expenses. Work with these figures to establish your own guidelines.

% of Includes Monthly Income Housing

35-45% Mortgage, rent, property taxes, insurance, repairs and improvements.

Utilities

8-15%

Food

10-20% All food items, dining out, pet food. On average, Americans spend 15% of their

Housing and utility expense can vary significantly depending on geographic location (i.e. urban, suburban or rural) and adjustments to the suggested budget percentages may need to be increased or decreased to allow for local conditions. Also persons living in high cost areas (metropolitan areas of California and other states) typically need more budget allocated to housing expenses . Individuals and families in the lowest income range may find that they would need to consider alternative housing arrangements (living with family members, sharing a house, etc.) as housing expense could exceed 60-75% of their income, leaving insufficient funds to pay for other basic budget items.

Gas, electricity, water, trash, sewer and telephone (regular & cell). If you are spending too much on utilities, consider switching long distance providers, saving up for a more efficient furnace, conserving electricity, stop sending text messages, etc. incomes on food. Watch out for fast food, which is a big budget buster. It’s 5 times more expensive to dine out than to prepare meals yourself.

15-25% Purchase and installment payments, gas & oil, repairs, insurance, parking & Auto & public transportation. Many of us have cars we can’t really afford. If that includes Transportation

you, consider trading your car for a more affordable one. And in general, leasing is a bad idea.

Medical

8-15%

Medical insurance premiums, prescriptions, doctor and dentist bills. Since medical bills don’t come along every month, consumers should save funds within the 8-15% range for emergencies.

Clothing

3-5%

All clothing purchases, shoes & alterations. There is a lot of gender-biased pricing in this category; women may find this figure harder to reach than men.

Personal & Miscellaneous

5-10%

Miscellaneous Club dues, admissions, hobbies, postage, tobacco, cosmetics, hair cuts and cable TV. Chances are you spend far more than 10% in this category. Most of these are “wants” and not “needs,” so you shouldn’t put this spending ahead of more vital items.

Savings & Investments

5-10%

It’s crucial that you set aside this 10% for your goals; as for investing, one shouldn’t consider it until they have significant savings ($10,000 or more) in the bank.

Monthly Installments

10-20% Installments Credit card payments, personal & student loans, any other debt

payments. If you are paying more than 20% of your income in unsecured loans, you may be in serious financial jeopardy. Call Springboard at 1-800-WISE-PLAN for free, confidential debt counseling.

MONTHLY BUDGET Now that you’re more familiar with your income, expenses and goals, it’s time to propose a monthly budget:

Necessary Expenses Current

Proposed

Discretionary Expenses

Housing Rent/Mortgage 2nd Mortgage Property Taxes Insurance HOA Dues Gas/Electricity Water/Sewer/Trash Telephone

Personal

Food Groceries Dining Out At work/school

Cable

Clothing/Jewelry Cosmetics Manicure/Other Entertainment Movie/Video Dining Out

Medical Care Doctor Optometrist/Lenses Dental Prescriptions Counseling/Therapy

Vacations/Travel

Child Care Daycare/Sitting Child Support/Alimony Miscellaneous Banking Fees Laundry Union Dues Other

Sports/Hobbies/Clubs Books/Magazines CDs/MP3 Miscellaneous Pet Care/Vet Gifts Cell Phone Postage Cigarettes/Alcohol Donations/Tithing Internet Access Other Total Discretionary Expenses:

Debt Payments Creditor Name

Income Taxes Prior Year Estimated Tax Payments Savings Emergency Goals Total Essential Expenses

Proposed

Beauty/Barber

Insurance Life Health/Dental Disability

Transportation Car Payment 1 Car Payment 2 Insurance Gas/oil Repairs DMV/Smog Tolls/Parking Public Transportation

Current

Total Debt Payments:

Monthly Payments

ÂŠ2009 Springboard Nonprofit Consumer Credit Counseling The Power of Paycheck Planning

SAMPLE BUDGET

Check out this sample budget weâ&#x20AC;&#x2122;ve prepared. Bear in mind that expenses vary greatly from state to state, so these numbers might not closely reflect your local expenses.

Necessary Expenses Current

Proposed

Discretionary Expenses

Current

Proposed

Housing Rent/Mortgage 2nd Mortgage Property Taxes Insurance HOA Dues Gas/Electricity Water/Sewer/Trash Telephone

1413

Personal

120 included

120

Beauty/Barber

$110 15 75 20

110 40 90 453

100 40 90 250

$230 40 150 40 $620 90

$160 60

150

100

305

100

CDs/MP3

150 50 25

0 0 0

Miscellaneous

$411

$251

120 80

60 40

60 125 26

0 125 26

$1261

$521

Food Groceries Dining Out At work/school Insurance Life Health/Dental Disability Medical Care Doctor Optometrist/Lenses Dental Prescriptions Counseling/Therapy Transportation Car Payment 1 Car Payment 2 Insurance Gas/oil Repairs DMV/Smog Tolls/Parking Public Transportation Child Care Daycare/Sitting Child Support/Alimony Miscellaneous Banking Fees Laundry Union Dues Other - household exp. Income Taxes Prior Year Estimated Tax Payments Savings Emergency Goals Total Essential Expenses

Clothing/Jewelry Cosmetics Manicure/Other Entertainment Cable Movie/Video Dining Out

50 200 90

50 10

Sports/Hobbies/Clubs

Books/Magazines

Vacations/Travel

Pet Care/Vet

325 275 90 200 20

325 275 90 225 20 20

Gifts Cell Phone Postage Cigarettes/Alcohol Donations/Tithing Internet Access Other Total Discretionary Expenses:

175

75 75

500 $4456

500 500 $4683

Debt Payments Creditor Name

Monthly Payments

Big Bank Visa/MasterCard Retail Loan Student Loan

$80 $120 $240

Total Debt Payments:

$340

Balancing That Budget Money Saving Tips to help meet your goals. Many of us will find that, given our current spending habits we aren’t on the path to financial freedom. Preparing a budget was only half the battle. Now we have to stick to it. Now is not the time to give up on tracking your spending; in fact, it’s more important now than ever. Spend another 30-60 days tracking your spending with your new budget – see how well you’ve stuck to it, and where your budget has leaks. We all have leaks in our budget, and tracking our spending at this point will help us identify and plug them. If you find your budget left out some essential needs, then you have to find room for them in your spending plan. If you find you’re spending a lot of money that you didn’t intend to, then you have to plug the leak. The first thing to do when reducing unnecessary spending is to know the difference between a want and a need. • Always ask your self this question before you make a purchase: “How did I get by so long without it?” The answer to that question will tell you how much you really need the item. • Be wary of advertising. Ads deliberately blur the line between want vs. need. We must become sophisticated enough to know the difference. • Not all needs are alike. Think ahead. You probably need a car, and if you’re planning to start a family, it will affect what kind of car you should get. Don’t throw away money on that convertible today when you’ll really need that minivan in a few years. Likewise, you may need a certain power tool for a project you’re working on. But if you aren’t likely to use that tool again, then it would be cheaper to rent it. You should include your entire family in any budgeting process. If your children see how tough it is to make ends meet, they’ll learn a valuable life lesson, and maybe even demand less of you financially. Put your kids on an allowance while you’re at it; it will save you money on impulse purchases and teach them the value of earning money.

Budget Busters We want to reiterate an essential lesson; continue tracking your spending after you create your new budget. Go back and re-read the previous page about budget leaks; you have to be constantly on the lookout for leaks so you can plug them quickly. There are some budget busters that cause leaky budgets for all of us. Among the most common are food, entertainment and retail shopping.

Food If you go over budget on food spending, chances are it’s because you dine out too often. It is five times more expensive to dine out than it is to prepare meals for yourself. So the first step to eliminating this budget buster is to cut back on going out to eat. Later in this book we’ll offer some tips on reducing expenses when grocery shopping.

Entertainment People often spend more than they plan to on entertainment because of the impulsive nature of it. It’s unlikely that you can predict every time the gang from work will invite you out for an evening of fun, so it’s hard to have the money set aside. But that’s what you have to do. Think of creating a discretionary entertainment fund. Set aside money for entertainment without a specific plan for every dollar. The idea is to have enough to handle whatever unpredictable entertainment expense should pop up. Of course, you have to have some discipline, and when the fund for this month is spent, it’s spent—you’ll have to tell the gang at work that you can’t join them this time. Maybe next month. Another thing to consider is free entertainment. Read your local paper, and look for free concerts and events. You may be surprised how often these kinds of events are offered. Finally, there are the movies. They’re the number-one entertainment outlet for Americans, and we spend a bundle on them. You can spend less on the cinema, though: • Plan ahead. If you like the movies, make sure you set aside money in your budget to attend them. Don’t let a trip to the movie theatre be an impulsive spending spree. • Beware of the snack bar. Just as when you go to the grocery store, don’t go to the movies on an empty stomach. Theatre owners make most of their money selling you sodas and popcorn, not selling you movie tickets. Not that this is a big revelation: Items at the snack bar are famously overpriced, and if you’ve ever been to the movies, you already know it. • Discounts. See matinee shows and use coupons where you can. • Find a reviewer you trust. Don’t gamble your hard-earned money going to a movie that might stink. Find a reviewer that you tend to agree with to help steer you away from the turkeys. Ask your friends and family as well.

Retail Shopping Many of the same strategies you use with grocery shopping can help you when you’re looking for clothing and household supplies. Here’s an important fact. The most common type of overspending is paying too much for things. Not buying too much stuff, or even buying what you don’t need. You’re most likely to simply pay too much. Avoid this by comparison shopping and keeping an eye out for sales and promotions. And another thing: if shopping is a form of entertainment for you, find a cheaper hobby. There’s nothing wrong with window-shopping, but if spending money is your idea of a good time, you’re going to have trouble making your budget work.

Increasing Income & Reducing Expenses Increasing Income: • If you are getting a tax refund each year, consider increasing the number of exemptions you are claiming on your W-4 form at work. This will give you more take-home-pay, but be sure that this will not result in an end-of-year tax debt. • Could you or your family member obtain part-time jobs to increase income? Work overtime or extra shift a few times a month? • Could your house be sold for a profit? Be sure to consider any tax consequences from the sale of your property, the cost of new housing, and your family’s stability and moving costs before deciding. • Can merchandise or real estate be sold for a profit? • Could you have a garage sale with all the unwanted treasures you have? • Could you sell an auto, and get buy with one car, even temporarily? • Could you borrow against cash values in insurance policies? • Does your mortgage escrow account have a surplus? Call and ask. Reducing Expenses for you and your home: • Get a home energy audit every couple of years with your power company to find ways to cut costs. • Check with your utility company for rebates whenever you install energy saving equipment. • Turn down your home thermostat two degrees and save 24 kilowatt hours a month • Lower your hot water thermostat 10 degrees, but no lower than 120 degrees, you’ll get the hot water and save 25 kilowatt hours a month. • Fix leaky faucets—one drip a second is 20 kilowatts a month. • Invest in weather stripping for drafty windows or doors. • Close your fireplace damper when not in use. • Is less expensive housing possible? (consider all expenses of moving) • Consider generic prescription drugs; ask your doctor if a true equivalent is available. Shop for prescriptions by calling and asking for prices. Also look into Wal-Mart/Sam’s Club $4 Generic Prescription Drug Program. • Hang clothes out to dry. Wear clothes that do not require dry cleaning. • Shop at garage sales for children’s clothes. Shop the essential “white” sales. Shop on eBay. • Personal care: find out where discount stores, beauty colleges, low cost dry cleaning in your area. Use Dryel to dry clean at home. • Could a relative or friend provide low cost day care? You could form a “daycare pool” with other working parents to share daycare duties. • Can you eliminate club membership dues and cut back on cost for newspapers, magazines & cable TV? • It’s suggested that you explain the situation with your children, and get them to help with your efforts to economize. They can be a big help. Reducing Expenses for your phone: • Review your telephone service costs. Perhaps you can reduce them. • Cancel all the extra charges, caller ID, voicemail, call forwarding, and three-way calling. • If you’re always on the run, consider swapping a land line for a cell phone. you’ll save on the monthly service fee, taxes and long distance fees for a land line that’s rarely used. • Drop your long distance carrier altogether if you make infrequent long distance phone calls. Instead, use a pre-paid phone card, a dial around service or even your cell phone if you’ve got the minutes. Reducing Expenses for your transportation: • Review insurance coverage (accidental death, collision on an old car). Are you over-insured? • Can you “trade down” your present car for one that has lower monthly payments and will cost less to insure and operate? Also, can you reduce any extra mileage? • Car pooling will help save costs on gas and maintenance.

MORE REDUCING EXPENSES Reducing Expenses when grocery shopping: • Trim your food bill by as much as 19% simply by shopping at a couple of different stores. • Don't “crisis cook.” Shopping after work for the day’s dinner gets expensive. Plan a weekly menu before shopping and watch your grocery bill shrink. • Don't waste money on prepared foods. Instead, prepare meals ahead of time and freeze them, or double a recipe when cooking, and freeze the second for a hectic day coming up. • Take the farmer's market approach: Buy produce that's fresh, inexpensive and in season. With less middlemen involved, you get good buys and your family gets the freshest food. • The highest markup items on the shelves are at about chest level. Reach up or kneel down to select the cheaper house or generic brands. • A grocery store's main aisles, like the paths to milk and bread, are usually strewn with high-priced land mines. Avoiding those pricey areas will really help. • Try to shop when you're alone. Those little helpers can quickly boost your bill. • Shop early in the day. You get through the store faster with your list and spend less. • Avoid shopping for food when you're hungry; you'll buy more. • Don't grocery shop when you're tired, you'll buy more sweets, more high-carbohydrates. When you're angry you go for crunch food, the junk food. • Buy on the markdowns and save as much as 20 percent. • Read your newspaper’s weekly food section for local grocery sales and menu ideas. • Clip coupons. You’ll also find coupons in women's and general-interest magazines. • Scout coupon swap-boxes, generally found at supermarkets, but also at some public libraries. • Take advantage of in-store coupon displays and the machines that spew them. • Log on to your supermarket's online home page for coupons. • Call the toll-free numbers on your favorite products’ labels and tell the customer-service rep how much you enjoy them. Some reps will offer cents-off (or even free) coupons for the product itself; if not, ask. • Nab a newsie. Does your newspaper vendor just dump the inserts in unsold papers at the end of the day? If so, would he mind tossing a few your way? • Check out the wealth of national-brands coupon-offering services on the Web. They can save you money—even the ones that charge nominal fees. • Find supermarkets that double—some stores even triple—the face value of manufacturers’ coupons. • Try for triple plays. That's when you use a manufacturer's coupon and a store’s own coupon. • Some retailers guarantee that if the item doesn't ring up at the correct price, you get it for free or at a discount. Pay attention to the details. • Avoid purchasing nongrocery items, such as painkillers, contact lens solution, etc., at a grocery store. You usually pay more. • Always get a rain check if a sale item is gone. • Know when your store marks down goods that expire, like meat and bread. The deal: Use them that night or freeze them. • Check your store for a small section where they discount products that aren't as popular as the manufacturer had hoped. This area can be a gold mine for bargains. • Shop with a calculator. That way, you can figure whether the unit price for a case lot is really cheaper than buying one of the same item. • Request price matching. Find a store in your area that will honor all competitors’ ads. You’ll save money, time and gas. • Beware of “discount store syndrome.” Just because you're in a bargain store doesn't mean you’re getting the best price on every item. • Check your receipts. No matter how careful you or the store staff might be, mistakes happen. • Always send in for the rebate on a purchase whether it’s $2 or $50. It all adds up. • Put your savings to work. Whether it’s a trip, a car or a savings account, have some specific goals for the money you’re not spending on food.

Shopping With Coupons Save money on that grocery bill and other coupon shopping:

Coupons can be a valuable tool to help consumers save money at the grocery store. But coupon shoppers have to be careful; coupons can be advertising devices designed to get you to purchase high-priced name brand items that are still more expensive than the brands you normally buy. Why save coupons? • Save money. • Try new products at reduced prices or free. • Help yourself; help others, save for another day. • To establish food and other products for your pantry or for someone else. • As a source of extra income: you can use the funds for something else you need. • If you save $60.00 per week-you have $240.00/month to spend elsewhere, or $2,880.90 per year in savings! • To use to purchase gifts: for wedding, shower, get well, housewarming, etc. • Store goods for emergencies. • Help you prepare your menus: you will use sale items for your plans. Where do you get coupons? • Wednesday and Sunday newspaper-(3x.35=$1.05) (value: 3x $80 in coupons=$240.00-even half that savings is $120.00). • Sunday paper, except before holidays • Grocery store coupons on flyers, mailer coupons, and coupons enclosed in products. • Magazines • Boxes • You can also find coupons online: • Couponcabin.com • Ebates.com • Keycode.com • Ecoupons.com How to cut them out: • Cut them in sets of three. • When to cut them: when watching TV, when talking on the phone, at lunchtime, waiting at a doctor/dentist office… • Cut all coupons: even when you think you won’t use the item, if you get it free or almost free why not get it? • Have child help – this teaches them the value of money. How do you store your coupons? • In a shoebox or plastic box. • Use Velcro container or expandable containers. • Newspaper plastic sleeve. • Envelopes. • Sandwich bags.

How do you sort your coupons? • Food and non-food items. • By category. By dollar amount (amount you will save on the coupon). • Sort them by product: pet food, cereals, dairy products, etc. • “Have to buy” • Sort coupons by aisle. How do you shop with coupons? • Determine what you can spend. Then limit yourself to that amount! • Make a list from newspaper ads based on sale items. • Watch for the coupons with of 40 cents or above (even for unadvertised items). • Shop at stores that double coupons (some stores won’t double more than $1.00) • Watch for special sales (triple coupons). • Buy in threes: you are shopping for today, tomorrow, later (but not more than three-you can only get 3 coupons doubled). • Get items free or almost free (Mary’s rule) • Buy smaller quantity containers (example: mustard, if you buy 8oz. @ 49 cents w/ 25 cents coupon = item is free. If you buy a 24 oz container @ $1.50 w/ 25 cents coupon you pay $1.00). • Use selective shopping: • Use your favorite store. • If new store learn the layout. • Buy all dry goods on one visit. • Buy all perishables on one visit. • Don’t shop when hungry. • Write down what you are “paying” keep a running total. • Buy early in the day/lunch time/ or in the evening. • Leave spouse or children at home: unless they help! • Don’t visit during shopping, it clouds your mind. • Take coupons in a box in your car-if they are at home and you see an unadvertised special you will want your coupons. • Get rain checks-on all items advertised in mailer, newspaper if they are out. • Buy rebate items separately- you need a receipt to mail in (bring envelope to mail in rebate form & receipt). Special tips: • If someone in your family wants a certain brand, save the container- and re-use it with less expensive products. • Watch for “buy one get free” sales. • Save your receipts: so you learn how much you are saving. • Make goals for what you can do with your coupon savings (if your budget is very tight this is one way to at least make ends meet!). • Have a “coupon partner” • You can use food stamps with coupons. • Observe store policies. • Get to know you cashier & stock person (they will tell you about good buys). Coupon shopping is a skill you can learn, and it will save you money for other things.

Shopping Smarter Planning ahead can make all the difference when retail shopping. Use this calendar as a rough guide for when to find seasonal sales or discount items.

January

February

March

April

Watch for: Post holiday clearance sales Pre inventory sales White sales Martin Luther King Jr. Day Sales Best buys: Winter clothing Coats Bedding, linens Holiday cards & gift wrap Swimwear

Watch for: President’s Day sales Valentine’s Day specials Best Buys: China, silverware, glassware Rugs & floor coverings Audio & visual equipment Furniture & home furnishings House wares Used Cars Steaks and young turkeys

Watch for: Spring & Easter promotions St. Patrick’s Day sales Best Buys: China & glassware Garden supplies Hardware & paint Rainwear Sunglasses Laundry equipment Fresh fish, spring greens Air Conditioners

Watch for: Spring & Easter promotions Best Buys: China & glassware Garden supplies Housecleaning supplies Housewares Air conditioners Laundry equipment Fresh fish, spring greens

May

June

July

August

Watch for: Mother’s Day sales Memorial Day sales Best buys: Sportswear Outdoor furniture Sporting goods Luggage Jewelry Auto accessories Dairy products & strawberries

Watch for: Father’s Day sales Bridal & Graduation Best Buys: Men’s & boy’s clothing Tools Linens, bedding Floor coverings Lingerie & hosiery Sleepwear Women’s shoes House hunting Asparagus & cheese

Watch for: Independence Day sales Best Buys: Swimsuits & beachwear Garden supplies Refrigerators & freezers Sportswear & equipment Fabric Bedding Rugs Furniture Fresh garden vegetables

Watch for: Summer clearance sales Back to school sales Best Buys: Appliances Sports equipment Garden furniture August white sales Office & school supplies Fresh vegetables & fruits

September

October

November

December

Watch for: Back to school sales Best buys: Car clearances Fall fashions Housewares China & glassware Children’s shoes Auto batteries Radios Hunting gear Eggplant, squash, cabbage & apples

Watch for: Columbus Day sales Halloween Best Buys: Major appliances Furnaces Furniture Hosiery Rugs & carpet Fall/winter sportswear Apples, potatoes, pumpkins & onions

Watch for: Thanksgiving & “Black Friday” sales Veteran’s Day Sales Best Buys: Home improvement supplies Shoes Blankets Bulbs, trees & shrubs White goods Christmas gifts & toys Nuts, small onions, winter squash

Watch for: Christmas gift & toy promotions Post Christmas sales Best Buys: Used cars Women’s holiday dresses Resort & cruise wear Coats Children’s wear Citrus fruits

Serious Spending Issues We hear a lot of talk in the media about “compulsive shopping.” The fact is, most shopping is impulsive, not compulsive. Impulsive shopping is when you see something and just suddenly want it. This isn’t something you planned or budgeted for. This includes the gift impulse. People with children, or nieces, nephews or other new babies in the family often fall prey to this. They may not have any unnecessary items in the house, but they overlook all the gifts they’ve bought on impulse that are sitting in someone else’s toy chest. Most of us are victims of impulsive shopping from time to time. Compulsive shopping is a different matter entirely. Compulsive shoppers have a serious problem. They can’t stop. They buy things they don’t need or really want. Their spending is an attempt to reduce anxiety or depression, and is symptomatic of deeper psychological issues.

10 Signs of Compulsive Shopping 1. Shopping to relieve anger or depression 2. Spending disrupts normal life 3. Conflict with loved ones erupts over shopping 4. Lying to family and friends about shopping 5. Feelings of elation when shopping 6. Frequently taking cash from others and putting their purchases on your own credit card 7. Shopping feels like doing something forbidden 8. Guilt or shame after shopping 9. Purchases that are never unwrapped or used 10. Purchasing things on credit for which one wouldn’t spend cash If you have experienced several of these symptoms, you may need professional help. Seek the services of a licensed therapist, or consider joining some kind of 12-step group (like Debtors Anonymous). True compulsive shopping is not to be taken lightly; even constructing an effective budget can contribute to the problem by freeing up more money to spend at the mall. Compulsive shoppers should get psychological help.

Your Credit Report Know what’s on it, and check it often. Your credit report has become increasingly essential to may areas of your life. The most important things you do; buying a home, buying a car, getting a new job, going to college – almost always involve someone reviewing your credit. Your credit report contains information on where you work and live, the credit accounts that have been opened in your name, how you pay your bills and whether you’ve been sued, arrested or filed for bankruptcy. Every consumer should check his/her credit reports on a regular basis; there may be mistakes on it that can wreak havoc on a person’s finances. The FACT Act of 2003 mandated that the three major national credit-reporting bureaus establish a website, a toll-free number and a mail address for consumers to request their credit report for free every year: *You may also purchase your score at this website for a small fee. 1. Go to the website www.annualcreditreport.com.* MAKE SURE you type the address correctly, or you may end up at an imposter site set up by identity thieves. a. Type the exact address of the free report site, INCLUDING the www (that is, type www.annualcreditreport. com).* b. Verify that you are immediately redirected to the secure page: https:// www.annualcreditreport.com/cra/ index.jsp is the redirect address. c. Verify that the security lock is present in your browser. d. On the data entry page (the first page you visit after you tell the site what state you live in), verify that a “VeriSign security” symbol is present near the top right on the page. Click on the certificate to ensure that it is indeed the certificate for www.annualcreditreport.com. 2. Call by phone: 877-322-8228 3. To submit a request by mail, download the Annual Credit Report Request Form located at www.annualcreditreport. com/cra/requestformfinal.pdf and mail it to: Annual Credit Report Request Service P.O. Box 105281 Atlanta, GA 30348-5281 (Keep in mind that the location of the form or file name may change.) Do not contact the credit reporting bureau directly as this is the only method to receive a free credit report.

Getting Your Report If you’ve been denied credit because of what your credit report says, you are also entitled to a free copy within 60 days of the denial. Contact the credit bureaus using the information below: Equifax – www.equifax.com To request your report call: 800-685-1111 Or write to: P.O. Box 740241, Atlanta, GA 30374-0241 To report fraud, call : 800-525-6285 AND write to: P.O. Box 740241, Atlanta, GA 30374-0241 If you are hearing impaired (TDD), call : 800-255-0056 and ask the operator to call 1-800-685-1111 and request a copy of your credit report. Experian – www.experian.com To request your report call : 800-EXPERIAN (800-397-3742) Or write to: P.O. Box 2002, Allen, TX 75013 To report fraud, call: 888-Experian (888-397-3742) AND write to: P.O. Box 9530, Allen, TX 75013 TDD: 1-800-553-7803 TransUnion – www.transunion.com To request your report, call: 800-888-4213 Or write to: P.O. Box 1000, Chester, PA 19022 To report fraud, call 800-680-7289 AND write to: Fraud Victim Assistance Division P.O. Box 6790 Fullerton, CA 92634 TDD: 1-877-553-7803

Springboard Nonprofit Consumer Credit Management 4351 Latham Street Riverside, CA 92501 PO Box 5438 Riverside, CA 92517-5438 1-800-WISE-PLAN (800.947.3752) www.credit.org springboard@credit.org

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